The head of the Energy Manager’s Association has blasted UK firms’ myopia on energy risk and suggested many could be in for a rude awakening in just a few months.
Lord Redesdale said he would “put money on brownouts or blackouts by the end of the year” due to the tightness of winter capacity margins. He thinks energy prices could rise by 25% within the next year.
Speaking to The Energyst ahead of the forthcoming Financing Energy Efficiency report, Lord Redesdale criticised companies for short-termism and failing to look beyond two year paybacks on energy efficiency measures.
“What they are missing out on, if energy prices go up 25% in the next year, which I think is quite likely, is that the payback [for higher capex energy efficiency measures] has gone right down. But because you didn’t [make the investment] you are hit with a massive bill.”
Why might power prices jump that much so soon?
“Because we haven’t got enough power. National Grid’s own graphs show that if we don’t build a load of generating capacity, our [supply margin] will go off a cliff,” said Lord Redesdale.
“It is not as if we are closing Ferrybridge for any other reason than it is 48 years old. It has come to the end of its life, and because of fracking in the States and the price of coal going down, we have burnt through the power stations we needed for 2016/17.”
Lord Redesdale suggested that wind and solar development would also “fall off a cliff” due to market reforms. He added that while gas plant was relatively quick to build, “they take seven years to connect to the grid at the moment”.
Meanwhile, aside from Sizewell B, Lord Redesdale said the UK’s nuclear fleet was on its last legs with little prospect of Hinckley C coming on stream before 2030, “if it ever gets built”.
Those factors place greater emphasis than ever on the need for energy efficiency, he said, suggesting that the government should focus on behaviour change via the Business and Local Energy Unit, the replacement for the scrapped Energy Efficiency Deployment Office.
“I love the idea of heatpumps and electric vehicles, but they are not going to do the job. We waste 40% of the energy we use. If we can halve that, it puts us below the point where we are going to have brownouts or blackouts,” said Lord Redesdale. “It is not as if we can hang around for the next five years.”
Nor the next five months, according to The Energy Managers Association chair.
“I would put money on the fact that there are going to be brownouts or blackouts by the end of the year. Some of our people were saying there was 1% capacity [margin] last winter and it was a really mild winter,” said Lord Redesdale. “So if you get a cold winter with 1% of capacity [margin] and Sizewell B, which is 8% of the grid, goes down for an hour … It is simple mathematics.”
National Grid last week stated that margins “look set to remain tight” for the winters of 2016/17 and 2017/18. In answer to Lord Redesdale’s predictions of supply shocks, a National Grid spokesman said:
“We’ll be setting out our initial view of the coming winter and consulting on that view in the next month or so. We have a number of tools in place to help us deal with even the toughest winter conditions, including the Supplemental Balancing Reserve and Demand Side Balancing Reserve. Our competitive tender for the SBR and DSBR has secured the reserve we need to do our job, as early as possible, while providing market certainty and keeping costs down for consumers.”
Lord Redesdale was unconvinced, but suggested one positive of potential supply and price shocks was that: “It will be a great time to be an energy manager… Because suddenly companies are going to see energy as a massive risk”.
More from Lord Redesdale in The Energyst’s forthcoming print issue.